Dear Friends,

Emerging Markets continued to outperform global equity markets and we now have eight months in a row with this trend. In simple terms, investors continue to reduce their exposure to the western stock markets in favour of Asia, Russia, MENA and Latin America. What drives this trend is valuations, earnings growth, GDP growth, inflation and future expectations. We see growth estimates for emerging economies far outpacing the developed part of the world over the coming years.

The world’s largest economy, the USA, is expected to grow 2.4% this year (2017) and record low unemployment at 4.2%, and with inflation as low 1.6%, it helps fuel the stock market to new all-time highs. The US has started to increase interest rates due to graduation from money printing and artificial support with super-low interest rates. A strong US economy and a healthy stock market helps set a good tone for global investors and gives a good support to emerging markets in general. A large part of national economies around the globe is experiencing a well‐ordered economic upswing for the first time since the financial crisis of 2008. We believe this trend should continue due to contained inflation, which means interest rates will likely only rise slowly in the coming years.

The world’s second-largest economy, China, saw the key indicator, the purchasing manufacturing index (PMI), at 52.4 at end September, which beat expectations and recovered to the highest level since May 2012. GDP growth is expected at 6.6% for this year with modest inflation of just over 2%.

India, the 6th largest economy in the world, is expected to growth above 7% for fiscal year 2017/18. Russia, still being sanctioned by the West, is expected to grow nearly 2% this year after two consecutive negative years. Inflation in Russia was 13% in 2015; now expected at 4%.

Commodity prices have increased, helping many of the commodity producers many of FMG’s funds have exposure to.

Emerging Markets continue to trade at about a 30% discount to developed markets, so the universe still offers attractive valuations.

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